Tariffs and Your Business: What To Do

The US has imposed (and in some cases paused) tariffs on a number of trade partner countries, effective in early February.  It remains to be seen whether these will remain in place; multiple factors from court action and international pressure (or capitulation), to Congressional, state, or consumer backlash, have and could continue to affect the duration of these measures.  The White House announcement of the tariffs makes clear that they would be imposed under an emergency powers law that gives the president wide latitude on such matters as long as he is reacting to a national emergency.  In the meantime, however, businesses must adjust to the prospect that prices are likely to go up in both predictable and unforeseen ways.  Both suppliers and customers are likely to be seeking ideas on how to adapt.  

Most immediately, businesses can check current contracts to see if they are likely to be affected by tariffs and price increases.  There may be a price “escalator” or adjustment clause in your agreement that allows for a supplier to pass tariff-related cost increases to the customer.  Note that not all price adjustment measures will contemplate price-raising due to tariffs, as many contracts currently in existence were drafted during a period of relative stability on the international trade front.  Furthermore, price adjustment clauses might be limited to direct costs and not account for more expensive costs of doing business overall.  

Other provisions in a standard contract, such as a broad “force majeure” clause, might also be relevant to any discussions of a price increase.  Furthermore, many supply agreements also allow for a price adjustment at renewal time.  Taking time now to calendar significant contract renewals and the associated notice dates would be prudent.   Your lawyer can help you decide how best to use your contract.  

It is worth noting that in any industry facing tariff-related cost increases, suppliers and customers are equally likely to be aware of the prospect of increases.  It may be less disruptive to the relationship/services overall for the parties to negotiate new prices even if the current contract does not explicitly address price increases.

Taylor English is monitoring tariff-related developments closely.  In coming posts, we will examine contractual mechanisms that both suppliers and customers may wish to consider (in future contracts) as a means to adjust to the risk of tariff-related spikes in cost.